MOBILISE CLIMATE FINANCE TO POWER AFRICAN GROWTH
The AFRICA CEO FORUM, the world’s largest international conference for the private sector in Africa, and PHILAE ADVISORY have joined forces to assess and provide guidance on financing decarbonised growth in Africa.
Currently, Africa is home to 75% of the world’s population without access to electricity. This major impediment to economic growth could become even more acute in the coming decades due to an unprecedented demographic trend: in less than 30 years’ time, one out of every four people living on Earth will be African.
Access to electricity is therefore the continent’s most pressing challenge, a generational endeavour, and one of the United Nations’ 17 Sustainable Development Goals (SDG7). Meeting this goal means that this electricity has to be affordable. And to be sustainable, it has to be as low-carbon as possible.
With renewable energy costs having dropped drastically over the past decade and the continent’s remarkable potential for solar, hydro, wind, geothermal and biomass energy, renewable energy (RE) meets the dual challenge of growth and decarbonisation and offers an opportunity to accelerate affordable and sustainable development.
However, Africa’s share of installed RE capacity is half that of the rest of the world. The continent’s energy mix is still largely carbon-based, with charcoal being the main source of energy for household cooking.
Developing and rolling out renewable energy is one of the opportunities being explored by what is commonly referred to today as climate finance, which includes all the financial instruments, both private and public, designed for greenhouse gas mitigation or climate change adaptation projects.
So, how can climate finance support the development of renewable energy in Africa?
While there is no shortage of global savings and financing, opportunities to invest in bankable projects are still too rare. So much so that Sub-Saharan Africa continues to attract less than 3% of climate finance.
In reality, most infrastructure projects do not reach financial close. According to McKinsey, fewer than.... 10% of projects make it to this stage, and 80% of them fail at the feasibility and business plan stage. There are several reasons for this: the absence of realistic long-term planning that takes into account the entire electricity value chain from production to distribution; incomplete feasibility studies and business plans; the lack of a comprehensive regulatory framework; and failure to agree on a balanced and bankable risk allocation.
Drawing on a series of interviews with key sector decision-makers and an in-depth analysis of business cases, our report proposes six recommendations for accelerating the mobilisation of climate finance for African growth. The aim of this report is not to give you a new state of play of the sector but to offer realistic and ambitious recommendation towards the continent’s energy transition. Here are the six recommendations: